Netflix just can't get social media right.
CEO Reed Hastings has gotten the company in hot water (again) after making an otherwise fairly innocuous Facebook post giving an "atta boy" to his chief content officer on a job well done.
On July 3, Hastings posted this message on his public Facebook page:
Congrats to Ted Sarandos, and his amazing content licensing team. Netflix monthly viewing exceeded 1 billion hours for the first time ever in June. When House of Cards and Arrested Development debut, we'll blow these records away. Keep going, Ted, we need even more!
Because of one particular sentence (can you guess which?) in that post, the Staff of the SEC has announced its intent to recommend an enforcement action against both Netflix and Hastings for violations of Regulation Full Disclosure ("Reg FD").
Reg FD requires that company information "material" to investors must be first disclosed publicly, in such a way that no one particular investor or group of investors has an advantage in accessibility over other investors. Reg FD requirements are traditionally satisfied by releasing information via a press release or a special SEC form for "Current Reports," Form 8-K. In some cases, the SEC recognizes a company's website as an appropriate manner of dissemination under Reg FD.
The problem here is that Hastings's Facebook missive was the first instance of anyone outside of the Netflix inner sanctum being made aware of Netflix's new monthly viewing record. The information was not posted on Netflix's company website or corporate blog, and apparently nobody filed a press release or Form 8-K disclosing the information.
Critics have decried the investigation for the fact that Facebook is notoriously public. The issue, however, isn't Hastings's use of social media. Other companies frequently use social media to live-broadcast earnings calls and announce other important company developments -- but those companies do it right. Their social network postings provide links back to their company websites as central repositories for information. Their live tweets of earnings calls are categorized by unique hashtags identifying the particular earnings call to which they refer. To try to cover all their Reg FD bases, they even display their social media postings prominently on their web pages in realtime. They take proactive steps to ensure that they comply with securities regulations (some of which I discussed more thoroughly in an Internet Evolution 7DEE session on Establishing Social Media Policies).
Most importantly, they make it clear that their social networking presences are reliable sources for investors for timely updates about material company developments. Conversely, Hastings has admitted to the SEC, "we don’t currently use Facebook and other social media to get material information to investors."
In other words, investors cannot fairly be expected to know to check Hastings's Facebook page as a source (let alone an exclusive source) for material investor information. Hastings could have spray-painted his note on the New York Times Building; that would have been public, too -- but certainly not Reg FD-compliant.
Reg FD requirements are not to be taken lightly. Google made headlines in 2010 by announcing that it would make financial announcements exclusively through its website, but the headlines didn't tell the whole story. In making that announcement, Google nonetheless issued multiple press releases, directed investors to its website, and still (23 minutes before the earnings call) electronically filed its earnings release and its Form 8-K with the SEC. As two legal observers pointed out: "[Google's] new practice differs from that followed by many other companies only in the exclusion of a press release containing the earnings information."
In the wake of the SEC notice, Hastings has argued that his "1 billion hours" statement is not material because of previous public disclosures about Netflix viewing volume being "close to" that figure. That's debatable, but beside the point for enterprises. Good social media compliance practice does not just mean, "Don't do anything unlawful." Good social media compliance practice means, "Don't do anything that could cause trouble" -- including triggering a government investigation that will cost time and money to defend against.
— Joe Stanganelli is a writer, attorney, and communications consultant. He is also principal and founding attorney of Beacon Hill Law in Boston. Follow him on Twitter at @JoeStanganelli.